Yorkshire Building Society defends fines response

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Yorkshire Building Society has defended its response to the multi-million pound fines levied by the city watchdog.

Last year, the Financial Conduct Authority (FCA) handed fines totalling £5.5m to the mutual, including a record-breaking penalty of £4.1m for treatment of mortgage customers who had fallen into arrears.

A second fine of £1.4m was issued due to misleading promotional material around some structured deposit accounts.

At Tuesday’s annual general meeting, Yorkshire Building Society outgoing chairman Ed Anderson defended its response to misconduct investigation after challenges from members.

Following an earlier apology from chief executive Chris Pilling for issues that led to the fines, Mr Anderson strongly denied suggestions from member Nigel Lindsay that the building society’s annual report “understates the seriousness of the position”.

Mr Anderson said: “You’ve implied that we haven’t taken this as seriously as we should of done - we do take this extremely seriously.

“We are sorry that in those two areas that we did not meet the high standards to which we aspire. We apologised at the time and I’m apologising now as well.”

The FCA had found there was “no deliberate attempt” from staff at the building society to mislead or mischarge customers, he said.

Since the problems were identified, Yorkshire Building Society has stopped charging arrears fees and reimbursed anyone who may have been affected, as well as withdrawing the structured deposit accounts in question and refunding customers, he added.

Mr Anderson, who stepped down as chairman at yesterday’s meeting after eight years at the mutual, also defended the decision to only cut bonuses of senior management involved in the misconduct investigation by between five and 10 per cent.

The financial penalty was levied against the 2011 deferred variable pay for those staff affected.

Bonuses are awarded against set objectives relating to revenue and profit and a regulator-approved risk framework, he said. As a result, the misconduct investigation accounted for one of several elements that dictated pay.

“We may have a difference of opinion about the extent of the taking back of variable pay that has previously been awarded, but personally I’m satisfied that what we did was proportionate and fair,” Mr Anderson said.

Members pressed the board on the wider issue of executive pay, with Mr Pilling in line for a total £923,000 pay packet including a bonus of £243,500 - equal to 44.5 per cent of base salary.

Guy Parsons, chairman of the remuneration committee, said pay reflected market pressures and the need to “attract and retain” top talent.

He also highlighted chief executive pay at Virgin Money and The Cooperative Bank as “similar-sized financial organisations” that awarded salaries in excess of £3m.

When asked why the board didn’t restrain executive pay “free for all” to boost savings rates, Mr Anderson said both remuneration and savings rates were “governed by the market”.

The remuneration report was ultimately backed by members, with 89.3 per cent of votes.

Diversity was also high on the agenda for members, with the building society’s target of 25 per cent board roles going to women labelled as “uninspiring”.

Mr Anderson said all positions were awarded based purely on merit, but that Yorkshire Building Society would like to see more women in leadership positions.

A number of members took the opportunity to praise Mr Anderson as he stepped down from the board, having steered the mutual through the turbulence of the financial crisis.

His successor, former Eversheds chairman John Heaps, was formally elected with the backing of 96.6 per cent of members.

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2014 marked a record year for Yorkshire Building Society, with total assets up £3.1bn to £37.6bn core operating profit of £179m.

A significant part of its growth has been down to mortgage lending, with gross lending up 13 per cent to £7.6bn. Net lending rose to £2.6bn, representing 11 per cent of the UK total. More than a third of all of its house purchase mortgages went to first-time buyers.

Chief executive Chris Pilling said mutuals were responsible for the majority of lending in 2013. “All of the building societies in the country, and ourselves in particular, basically we were the lending,” he said.

While this changed slightly in 2014, the sector was still responsible for most home loans.

“Banks aren’t lending, building societies are,” he added.